Luby's Announces Fourth Quarter & Fiscal 2008 Results

Luby's, Inc. (NYSE:LUB) today announced unaudited financial results for the fourth quarter of fiscal 2008, which ended on August 27, 2008.

Fourth Quarter Highlights:

• Opened two new prototype stores in the fourth quarter, including one relocation

• Culinary contract services revenue increased to $3.0 million in the fourth quarter compared to $1.6 million in the same quarter last year

• Restaurant sales were $94.1 million, a decrease of 2.7% compared to last year, approximately 0.7% of the decline relates to the net effect of sales from closed stores in the prior year partially offset by new store sales in the current year

• Same-store sales, which included 120 units, declined 2.0% in the fourth quarter compared to the same quarter last year

• Store level profit, which the Company defines as restaurant sales minus costs of food, payroll and related costs and other operating expenses, was $8.5 million, or 9.0% compared to $16.9 million, or 17.4% last year

Total sales decreased $1.2 million, or 1.3%, in the fourth quarter fiscal 2008 to $97.1 million, compared to $98.3 million in the same quarter last year. The Company had a loss from continuing operations in the fourth quarter of $3.7 million, or a loss of $0.13 per diluted share, compared to income of $3.2 million, or $0.12 per diluted share in the same quarter last year. Included in the loss from continuing operations is a $0.8 million impairment charge recorded as a result of market conditions affecting the fair value of investments in auction-rate securities. Excluding the after-tax effect of the fair value impairment charge and one-time asset charges, partially offset by a net gain on disposal of property and equipment, the loss from continuing operations in the fourth quarter fiscal 2008 was reduced by approximately $0.04 per diluted share.

'In the fourth quarter we experienced a continuation of the macroeconomic challenges that we faced during recent quarters, primarily due to high consumer fuel prices and negative economic news pressuring customers and their discretionary budgets,' said Chris Pappas, President and CEO. 'The effect of these pressures has led to an industry-wide decrease in customer frequency, which negatively impacted sales during a time when many restaurant expenses continued to increase. During the fourth quarter, our costs were adversely affected primarily due to increased food commodity costs and higher utility rates. While our profitability was negatively impacted during the quarter, we are focused on improving store level profit within the current economy through enhanced operational focus and marketing efforts. We plan to launch a new branding campaign in November that highlights Luby's unique value offerings and broad-based brand appeal.

'Consistent with our business plan for fiscal 2008, we invested in upgrades to our existing stores, built new restaurants and grew our culinary contract services business using cash flow from operations. Expanding our brand and investing in our business continues to be our long-term plan for the Company,' said Mr. Pappas. 'However, today we believe that in light of the current economy it is prudent to manage capital allocations conservatively and maintain a healthy balance sheet. We have taken a conservative approach to our capital allocation in fiscal 2009 for new unit development and store upgrades and now expect to significantly reduce our capital expenditures. Our current plans are to open one or two new restaurants in fiscal 2009. We believe our operational execution has improved through the higher standards we have committed to delivering for our customers and over the long-term will enhance shareholder value.'

Food costs increased approximately $0.6 million in the fourth quarter fiscal 2008 compared to the same quarter last year. Food costs as a percentage of restaurant sales increased to 28.5% in the fourth quarter fiscal 2008 from 27.1% in the fourth quarter last year. Food commodity costs increased in most categories with oils, shortenings and margarines having the greatest impact on food cost increases, followed by beef, seafood and fresh produce.

Payroll and related costs increased $0.8 million in the fourth quarter fiscal 2008 compared to the same quarter last year. Payroll and related costs as a percentage of restaurant sales increased to 36.3% in the fourth quarter fiscal 2008 from 34.5% in the same quarter last year, primarily due to the deleveraging of the cost of labor with lower sales volume.

Other operating expenses primarily include restaurant-related expenses for utilities, repairs and maintenance, advertising, insurance, supplies, services and occupancy costs. Other operating expenses increased by approximately $4.3 million compared to the same quarter last year. As a percentage of restaurant sales, other operating expenses increased 5.2%. Other operating expenses increased primarily due to 1) an approximate $2.3 million increase in utility expense resulting from higher utility rates, and 2) an approximate $2.0 million increase due to higher repairs and maintenance, marketing and supply expenses related to a focus on improving the appearance and functionality of the restaurants for guests and employees.

Opening costs were approximately $0.2 million in the fourth quarter fiscal 2008 and reflect the labor, supplies, occupancy, and other costs necessary to the support of new stores through their opening period.

Cost of culinary contract services increased by approximately $1.3 million in the fourth quarter fiscal 2008 compared to the same quarter last year. This increase was related to the food, labor and other operating expenses associated with the increase in revenue for this line of business.

Depreciation and amortization expense increased approximately $0.5 million in the fourth quarter fiscal 2008 compared to the same quarter last year due to higher depreciation resulting from new restaurant openings and existing restaurant upgrades and remodels.

General and administrative expenses include corporate salaries and benefits related costs, including restaurant area leaders, share-based compensation, professional fees, travel and recruiting expenses and other office expenses. General and administrative expenses increased by approximately $1.1 million in the fourth quarter fiscal 2008 compared to the same quarter last year. As a percentage of total sales, general and administrative expenses increased to 7.8% in the fourth quarter fiscal 2008, from 6.6% last year. The increase was primarily due to corporate salary expense related to staffing costs to support the culinary contract services business and other departments to support the Company's strategic growth plan.

Fiscal 2008 Highlights

• Opened three new prototype restaurants and closed seven stores

• Same-store sales declined 2.6% due primarily to declines in guest traffic partially offset by higher menu prices

• Totals sales were $317.7 million in fiscal 2008 compared to $320.4 million in fiscal 2007

• Luby's Culinary Contract Services business generated $8.2 million in sales during fiscal 2008, compared to $2.1 million in sales during fiscal 2007

• Cash flow from operations was $17.5 million in fiscal 2008, compared to $33.5 million in fiscal 2007

• Capital expenditures were $40.2 million in fiscal 2008, primarily for new store construction, land development and upgrades at existing stores

• Income from continuing operations was $2.5 million in fiscal 2008 compared to $11.1 million in fiscal 2007

• Store level profit decreased to 13.5% in fiscal 2008 compared to 17.3% in fiscal 2007

• Repurchased 500,000 shares of common stock

Company Outlook

The Company anticipates that, given existing market conditions, current sales and expense trends will likely continue through fiscal 2009.

Based on our outlook and recent decline in cash flow from operations, we currently expect to significantly reduce capital expenditures in fiscal 2009 to the range of $12 million to $17 million, compared to $40.2 million in fiscal 2008.

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